Background information
Nintendo is known as one of the most successful multinational video game companies in the world, having entered the video game market in 1974. It is popularly known for having produced video game consoles such as the Game boy and Nintendo 64, and creating the Mario game series.
Recent performance
Nintendo has had great success in the last seven years with its Nintendo DS and Wii product, having sold at least 40 million units of the latter around the world. However, its stock values have declined since 2007 and has had a drastic 20% fall in its share price this year alone. The drastic fall was due to the cut to the forecasted earnings, as well as a loss of 483.6million dollars for the second quarter of 2011.
Reasons for recent performance
In recent years, the advent of smart phones (namely the Iphone) and tablets has led to the development of small popular games such as Angry Birds. As phone-games grow in popularity with the growing number of smart phone users, Nintendo has started to lose its hold on the handheld market, losing significant market share in recent years.
In 2009 Nintendo had captured 70% of the US portable game software revenue, whilst iPhone OS had 19%. In 2010, Nintendo has fallen to 57% whilst iPhone OS and Android phones have risen to 34% in one year alone.
Additionally, reception of Nintendo’s latest console the 3DS has not been as strong as expected. Since its debut, sales have been weak in comparison to handheld consoles already in the market such as the PSP and Nintendo DS. It is believed that the lack of strong games to be launched with the console, as well as the difficulty of usage of its 3D effects, has led to sales being weaker than expected. Another of Nintendo’s competitors, Sony, has also planned to release the PS Vita, a new handheld console that is widely considered technologically superior and is selling at $250, the same price of the 3DS. As such, the company’s executives have lowered the price of the 3DS by 40%, selling at a loss in order to compete in the handheld gaming market.
Other problems Nintendo may face
During August 2011, the US debt problem and subsequent downgrading of its AAA credit rating to AA+ by Standard and Poor’s have led to investors buying ‘safe currencies’ such as the yen to provide a haven during this year of volatile market movements. This has caused the yen it to rise in the foreign exchange rates, adversely affecting export-based companies such as Nintendo. This surge eroded a significant amount of Nintendo’s revenues as more than 80% of it is earned from overseas markets. The high value of the yen may also lead to speculation and cause wild movements in the exchange rate.
However, this has been remedied in the short term as the Japanese government sold 4.6 trillion yen in the foreign exchange market to bring it down from its high of JYP 79.5839 yen per US dollar to around 76 yen per US dollar. This has been the second selling of yen this year by the Japanese government, with the first following the rise due to the 2011 Tohoku earthquake and tsunami.
If the situation in the US and Europe worsens, then the Japanese government may need to work with other governments in the selling of the yen should investors decide to use it to protect their wealth.
